Barclays Global Investors Australia, with
AUD17 billion (USD9.15 billion) under management, is examining
using credit-default swaps for the first time for its AUD2 billion
fixed-income portfolio. "We're building up our knowledge of the
product," said Mark Nordio, head of fixed-income in Sydney.
The firm is in the initial phases of studying credit-default swaps
and will not make a decision whether to use the product until it
has more information. However, if it does decide to pull the
trigger it will likely take 12-months before it enters its first
trade, said Nordio.

Credit derivatives would help the asset manager
to alter its credit exposure. "They seem to offer an efficient way
of hedging credit exposure," he added. BGIA would primarily look at
purchasing credit-default protection on domestic bonds it holds and
take advantage of the basis differential rather than selling
protection as default-swaps typically trade tighter than the
underlying bonds. Nordio declined to elaborate on the potential
size of its credit derivatives portfolio.

Nordio said he is currently reading up on
developments in the credit derivatives market in Australia: "you
need to keep abreast of the products...there's a lot of research
out there--each house has their own experts." But, Nordio declined
to reveal factors on which it will select counterparties. The asset
manager will need to gain a further understanding of the products
before it is ready to seek approval as well as establish systems
and procedures.

"This can only help the market," said a credit
derivatives trader, noting that end-users becoming involved will
boost liquidity. "With people like Alan Greenspan commenting
that credit derivatives can mitigate financial risk and with the
International Swaps and Derivatives Association's proactive
stance on addressing uncertainties in documentation, more investors
in Australia are viewing credit derivatives as a credible product,"
added the trader.

A number of Australian asset managers have been
looking at credit derivatives in recent months including Tyndall
Australia (DW, 6/9) and Portfolio Partners (DW,
7/7).